How to Stress-Test a Retirement Plan for Taxes, Inflation, and Market Volatility

A retirement plan that only works in a straight line isn’t much of a plan. Markets fall, tax rules shift, and the cost of living keeps climbing long after the last paycheck stops. Stress-testing a plan means asking what happens to it under pressure, before that pressure shows up in real life.

At Veritas Wealth Management, we walk clients through three factors that can quietly undo an otherwise solid retirement plan: taxes, inflation, and market volatility.

Taxes don’t disappear when the paycheck does

Many retirees assume their tax bill shrinks once they stop working. It often does, but not as much as they expect, and not on a fixed schedule. Retirees generally must begin taking required minimum distributions from traditional IRAs and 401(k)s at age 73, with the RMD age rising to 75 for those who reach age 74 after 2032.

Those withdrawals count as ordinary income. Stacking them on top of Social Security or part-time work can push you into a higher bracket without much warning.

Moving money from a traditional IRA to a Roth IRA before RMDs begin means paying tax on the conversion now, at a bracket you control, rather than later at a bracket dictated by required withdrawals. A stress test should model different conversion amounts to see which one keeps future RMDs from pushing income into a higher bracket.

Know your bracket

For 2026, the top federal income tax rate of 37 percent applies to single filers earning more than $640,600, and married couples filing jointly above $768,700.

A stress test should model what a plan looks like if a spouse passes away and the survivor files as a single taxpayer with narrower brackets, or if a large Roth conversion pushes income into a new bracket for a single year.

The One Big Beautiful Bill Act, signed in July 2025, made the current seven-rate structure permanent, so these rates aren’t scheduled to expire the way they once were. Permanent isn’t the same as guaranteed. A future Congress can still change them, and a plan built entirely on today’s brackets should be tested against that contingency.

Selling investments has its own tax math

Retirees drawing from taxable brokerage accounts face a separate set of rules.

For 2026, long-term capital gains are still taxed at 0, 15, or 20 percent depending on income, with the 0 percent rate available up to $49,450 for single filers and $98,900 for married couples filing jointly. A stress test should check whether a plan can time large sales, like unwinding a concentrated stock position, to land in a lower bracket.

Selling a losing position to offset a gain elsewhere can reduce the tax bill in a rough market year, as long as the trade doesn’t run afoul of wash-sale rules. A stress test should assess whether a portfolio has the capacity to do this kind of matching when it’s needed most.

Inflation isn’t a one-time event

Inflation compounds every year, quietly raising the cost of groceries, health care, and housing.

Social Security benefits get an annual adjustment, set at 2.8 percent for 2026, to help offset inflation, but the increase doesn’t always keep pace with your actual spending, especially on health care.

A stress test should model a retirement inflation lasting 25 or 30 years at different inflation rates.

Give the plan room to survive a bad market

Sequence of returns risk, the danger of a market downturn early in retirement, can do lasting damage even after the market recovers.

Selling investments at a loss to cover living expenses permanently locks in that loss. One common defense is holding a year or two of spending in cash, so withdrawals during a downturn come from that reserve instead of a shrinking portfolio.

Standard deposit insurance covers up to $250,000 per depositor, per insured bank, for each account ownership category. Cash above that limit at a single bank isn’t federally insured, so a larger reserve may need to be spread across more than one institution.

Diversification across stocks, bonds, and cash also matters. A portfolio that holds only stocks has no natural cushion when the market drops, forcing every withdrawal to come from investments that lost value. Spreading money across asset classes that don’t move in lockstep gives you more choices about where a withdrawal comes from in a down year.

Stress-testing a portfolio against taxes, inflation, and market volatility reveals where the real risks lie before they surface in a bad year. That’s the kind of pressure test worth doing well before the first withdrawal.